The exchange traded fund (ETF) industry is going to go in for the kill, as the actively managed mutual funds just aren’t earning their keep. This is the ETF industry’s best opportunity to gain more market share and prove its mettle amid the mess.
Cost Efficiency. ETFs are more cost-effective than your average mutual fund, and unlike the active managers who claim protection, ETFs are able to insulate investors better than most managers.
Easy to Trade. ETFs are also flexible to trade and have better tax advantages than their predecessors. 2008 was a poor year for most indexes, especially The Dow Jones Industrial Average, which is at levels not seen since 1931, reports Jane Bryant Quinn for Bloomberg.
Tracking an Index. An ETF is like a mutual fund that you can sell and trade like a single stock through a brokerage account. Most ETFs are index funds – meaning they track the performance of a particular market, or slice of the market, rather than try to exceed it.
Active managers claim is that they will beat the indexes, since their funds build up cash during a market drop. They’re also supposed to be able to pick the stocks that will hold up better during declines, as they are earning their pay, right?
They’re Not Trying to Outperform. Last year, 58% of all actively managed funds lost more in value than the benchmark they measure themselves against, reports Morningstar. Many say that that is around the same as chance.
Instead of trying to beat the market, why not just buy the market and save yourself the headache?
To learn more about ETFs and how you can use them, you can either purchase our book, iMoney: Profitable ETF Strategies for Every Investor or visit our education page.
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.